A forecasting measure for global growth derived from the OECD’s country leading indicators rose again in September, confirming June as a recent low. The indicator’s improvement is consistent with the forecast here of a revival in global industrial momentum in late 2012, allowing for an average three-month lead time – see first chart.
An accompanying “leading indicator of the leading indicator”, moreover, rose for a fifth consecutive month, suggesting that the indicator itself will continue to recover in October and November – second chart. (The “double-lead” indicator is explained in a previous post.) This, in turn, would imply a further pick-up in growth in the first quarter of 2013.
The basis for the forecast was a rise in global real narrow money expansion from a bottom in April / May – real money leads industrial output by six months and the leading indicator by three months, on average. The real money measure continued to climb in September – also consistent with the coming global upswing extending until next spring, at least.
Such a scenario, of course, would be at risk were the US economy facing a 2013 fiscal cliff of 4% of GDP, rather than the 2% or less likely to result from an eventual budget deal (despite the predictable hardline posturing of the parties ahead of negotiations). Assuming a Keynesian multiplier of 0.5 (not contradicted by recent data, as explained in a previous post), fiscal tightening of 2% of GDP would lop 1 percentage point off growth next year – modest relative to the boost from current expansionary monetary conditions.
